CPEC: An Economic Panacea for Pakistan?

A little over a year after entering its implementation phase, the China Pakistan Economic Corridor (CPEC) is making remarkable progress. As the first hefty consignment of Chinese goods departs from Gwadar seaport in Balochistan, the World Bank projects Pakistan’s growth rate to be 5.2 percent for 2017 from an earlier projection of 5 percent. This piece aims to shed light on the economic connotations of the corridor project concluding that it a positive-sum game for these all-weather associates.

With an official launch in April 2015, CPEC swiftly came to prominence as a game changer in the region and produces nationalistic fervor within much of Pakistani society, media, and political discourse. The $62 billion venture epitomizes the principal project of the Belt and Road initiative, envisaged by President Xi for an economic amalgamation of Eurasia through a sprawling web of highways, railways, docks, factories, power plants and wind farms.

According to the Planning Commission of Pakistan, 17 ‘early harvest’ projects have so far produced 30,000 new jobs for locals and intend to spawn over 700,000 direct jobs and amplify up to 2.5 points to the annual economic growth by 2030.

The Pakistani Perspective

CPEC displays the strong rapport that Pakistan relishes with China. The two-pronged liaison has traditionally been trademarked by the convergence of high-level political association with a deeper tactical partnership. This corridor scheme, however, now postulates a modern footing for potential synergies between their national development plans and shows the beginnings of a long-standing camaraderie into multilateral economic cooperation.

Pakistan’s economy has been undermined by energy insecurity and the insurgency waged by the Pakistani Taliban. Cautious estimates calculate that the rampant power-cuts alone have cost Pakistan up to 4 percent of GDP and transpired to be a major source of unemployment. In addition, the country has borne around $123 billion of losses on account of lives, economic prospects and devastation to its already feeble infrastructure since it became the vanguard ally of United States in its ‘war on terror’. The colossal flight of capital and lack of foreign direct investment impelled successive administrations in Islamabad to rely on the International Monetary Fund for economic constancy. The CPEC finance – which amounts to about 20 percent of annual Pakistani GDP – gives the potential to change this.

The United States has also materialized as a transactional partner that provided Pakistan with the military sustenance and an aid-focused agenda revolving around counter-terrorism. Instead of aiming principally at economic growth, it relentlessly stipulated more action against militant safe havens and the ‘Haqqani network’ allegedly operating from within Pakistan. Inversely, China has resolutely lauded Pakistan’s efforts against terrorism and emerged as a benevolent, enduring and reliable investor that could potentially boost its weak energy sector, improve its crippled infrastructure and boost its faltering economy without engaging in diplomatic bullying.

China’s Outlook

CPEC is fundamental to Chinese economic and energy reassurance as it links China directly with the Indian Ocean and easier access to the Middle East from the warm waters of Gwadar seaport. The corridor plan reduces China’s current reliance upon the South China Sea that is fast becoming a disputed space between several regional and international powers, and can be clogged at any point by contending players in the Asia-Pacific territory. Gwadar seaport is economically pivotal for China to transport the 80 percent of its energy supplies from West Asia and shrinks its present maritime haulage from some 7,500 miles to 1,865 miles.

Through the flagship Belt and Road initiative, CPEC embodies an economic blueprint that seeks to craft fresh markets for China’s goods and technology particularly at a time when its economy is slowing down and to relocate surplus steel and cement capability by moving plants abroad to less advanced states. Equally, Beijing foresees the initiative will enhance the economies of its underdeveloped periphery regions such as Xinjiang Province.

Moreover, China’s categorical ‘One China Policy’ considers secessionist activities and local terrorism as critical threats to its national safety. The East Turkestan Islamic Party (ETIP) is one such faction that uses violence in Xinjiang, the home to the Turkic-speaking Uyghur Muslim minority. Drawing upon the perpetual inequality and alienation from the central government, the ETIP seeks to accomplish Xinjiang’s emancipation from Mainland China, and the group has a record of unleashing fatal attacks against Beijing.

Notably, the World Bank cites social and economic inclusion as one of the paramount preventive courses against radicalism. Such assertion resonates well with China’s development strategy, which contends that economic activity and job creation can hamper terrorism. To that end, rather than engaging militarily, China aims to tackle these perils through investment ventures and discerns economic prosperity through regional connectivity a cure to not only its own but regional security misgivings

The recent project progress update announced by CPEC affirms an optimistic newscast for the Pakistani economy. Various energy assignments, such as Port Qasim and the Sahiwal Coal-Fired Power Plants, are virtually complete and their first unit of 1320 MW is projected to generate electricity by summer 2018. Likewise, numerous segments of the Peshawar-Karachi Motorway and the Karakoram Highway Phase II – a network of highways that will connect the Sino-Pakistan border in the north with the coastline in the south – are set to culminate in April 2018. According to the Planning Commission of Pakistan, 17 ‘early harvest’ projects have so far produced 30,000 new jobs for locals and intend to spawn over 700,000 direct jobs and amplify up to 2.5 points to the annual economic growth by 2030.

Ultimately for China, CPEC denotes a central component of its Belt and Road initiative that seeks to boost economic progress through regional integration, whilst reinforcing its prominence as a major peaceful global power. With an age-old energy starved terror-ridden economy, China replaces the United States as the new staunch ally for Pakistan that pledges its economic stability through the corridor project. While some may critically interpret the rising Chinese role in Pakistan that may have grim repercussions, in the long run, the country’s shrinking tax net with less than one percent of Pakistanis paying direct taxes means that CPEC is the only game in town – at least, for now.

Hammad Zamurrad is a Chartered Accountant based in London with master’s degrees in International Political Economy and International Relations. He tweets @hammadzamurrad. Image Credit: CC by Pakistan and China/ Flickr